tv [untitled] July 31, 2013 12:00pm-12:31pm PDT
we'll also be performing a single audit for mta and various agreed upon procedures as listed on the slide here. we will also be performing a single audit over sfo. and the audit will be performed in accordance with u.s. gaap, u.s. gas and u.s. government auditing standards. slide 15 highlights the report that we will be issuing in accordance with this audit plan. as i mentioned before, we will be issuing audit reports on the financial statements of hss, mta, puc, and sfo. we will also be issuing a single audit report for mta, a tda compliance letter for mta. various agreed upon procedure reports, various public compliance reports for mta, report on [inaudible].
and also a single audit report for sfo. i did want to highlight on this slide that in the prior years single audit report, there was one finding in relation to noncompliance with the davis beacon requirement with respect to the timeliness of submission of weekly certified payroll reports. we do anticipate adding this to our current year schedule. we'll be looking to ensure that the recommendations have been implemented. okay. then if i may refer you to slide 18, slide 18 really highlights our audit timeline and key dates. we are currently in the planning and interim fieldwork phase which is expected to continue through august 2013. our final fieldwork is scheduled for september through january 2014. and our expected date of issuance of the financial statements is october 25th. that also includes any
significant deficiency reports. and the issuance of the single audit report is expected to occur before january 31st, 2014. on slide 19, i just wanted to highlight as auditors we do have a responsibility to identify fraud risks and respond to those fraud risks. we will be performing risk assessments of those risks through increase with management and discussions with the engagement team. and we will also design audit procedures to respond to those respective fraud risks and report to you any findings we may have. and then lastly, i just wanted to indicate on slide 22 that we are in our professional judgment independent with respect to the city as that term is defined by professional standards.
and at this time if there are any questions that i can help address. >> thank you very much. are there any questions, colleagues? supervisor campos. >> thank you. so, in terms of the process, how long, again, would it take for us to hear from you in terms of your findings? >> it depends. i can get with you sometime after the audit is could have pleat. it would be sometime after october for the audits and january for the single audit and the other report. ~ complete >> in the process of continuing your work, does the scope change as you're getting some of the information and doing some of the work? >> yeah, the scope does change, the concepts that we consider in determining the nature and timing and extent of our procedures is materiality which is calculated every year. so, depending on materiality, depending on the events that have occurred with each respective entity, our scope
could change. >> okay, great. thank you. >> all right, thank you so much. is that it? great. i think we have one more presenter, right? >> yes, we do have one more presenter. also, if you do have any questions, we also have representatives from each of the departments that is on the handout before you in case you have any questions. >> i just have one administrative. [speaker not understood] standing in the back of the committee room, if you could go to the chamber where the overflow room is, we have seats there. unfortunately we have a committee room rule that you cannot stand in the aisles. when this item is over, i'm sure there will be seats available. so, you're more than welcome to come back at that time. please continue. thank you. >> thank you. so, our next presenter is annie lou aloe director from the [speaker not understood] and she will be presenting, again, her audit plans for the year-ending june 30th, 2013, as
well as going over the four findings that we have related to the rest of the city ~. so, that would be -- we have one financial statement finding which is material witness related to the successor agencies to the former redevelopment agency. and you have three single audit findings. one is for dph, office of environment, and the office of emergency management. >> great, thank you so much. >> good afternoon. i actually prepared a powerpoint presentation for you. today i'm going to go over the audit results for 11-12. i'm actually here to present two reports, city reports. the first one is the city's comprehensive annual financial report or what is known as the c-a-f-r. the second report is the board as the governing body of the city. and lastly the third report is the single audit report which is the compliance audit of the
city's federal program. i do want to mention that [speaker not understood]. we audit all of the city's funds except for the ones that are audited by kpmg and other auditors which includes the health services, the airport, the puc, the mta, as well as the market corporation. for the city's c-a-f-r, we issue an unqualified opinion which is the highest level issuance that the city may have. i do want to point out that in our audit opinion for 2012, we had two additional paragraphs to emphasize certain matters. the first one related to the solution of the redevelopment agencies as effective february 1st 2012. and the city had selected to become the successor agency for the development agency which is responsible for overseeing
[speaker not understood] ~ of the activities. the second item of emphasis related to the [speaker not understood] that related also to the deliberation process, the state controller's office as well as the department of finance are responsible for reviewing the dissolution process and the distribution of any remaining assets to the city's [speaker not understood]. and because the process is still ongoing at the time of the issuance of the city's c-a-f-r, we wanted to point out that the results were unknown at the time. the second report that i want to go over is the report to the gao. this report included all the required communications that [speaker not understood] we have to report back to the city's governing body. these items that i have listed on the slide are very typical of any [speaker not understood] communicationses that you may see. i do want to point out that the first item, the equal tate i
have access of accounting practices, this is the item where we would list any significant estimate included in the city's financial statement. and the -- any funds for the [speaker not understood] that may be included. in the report we have estimates related to the city's pension as well as opab benefits and those are disclosed in 9a and 9b of the city's c-a-f-r. and i'll also go over an upcoming accounting standard that will change the presentation of these benefits in the near future. the other items included in this include current new findings. so, we have in relation to the city's financial reporting, we do have a material weakness relating to the successor agency or the [speaker not understood] agency that was dissolved in february of 2012.
because of that issue, that we have noted as a result of the dissolution process, we noted that there is not an adequate staffing in terms of financial reporting process. so, we wanted to point out that -- and what we had a recommendation for the city to provide any additional assistance that may be needed by the successor agency to prepare the [speaker not understood] financial statement going forward. and i understand that there are some representatives from the successor agency to speak on this item if you have any questions in this regard. >> thank you. i assume it's probably better if we have a question about a finding to raise it as you're -- in that presentation, portion of the presentation. so, what is the material weakness mean? and specifically what kind of staffing is it that they don't have? >> okay. there are basically three levels of assigning in terms of internal controls. the most severe level is material weakness. what that means is we think
there is a likely -- high likelihood that such deficiency will result in a material statement in your financial statement. the next level, we call it [speaker not understood] deficiency. it may not lead to a material misstatement, but we think it is important enough to warrant attention. so, we bring it to your attention as the governing body. the lowest level is just a regular deficiency. it could be any improvement areas and whatnot, but not necessarily something that would lead to a material misstatement [inaudible]. >> so, for the successor agency, a material weakness is the worst of the three. >> and if you refer to the report, all the details are included on page 6 of the report to the gao. and the reason for this particular finding to be classified as a material weakness, as you go through the details basically, because of the dissolution process, in 2011 the agency had five
individuals who were involved in the financial reporting process. because of the dissolution, the federal agency now only has two individuals who were left to do all the work. basically [speaker not understood] successor agency. with the dissolution, there were a lot of questions that were raised on how items should be reported in the financial statement. so, it's really a complicated process, and there's a lot of reconciliations that needed to be done. so, we felt like reduce staffing and all the additional requirements that needed to be met wasn't necessarily being fulfilled. >> and what's the budget of the successor agency? >> [speaker not understood]. >> okay, thank you. >> members of the committee, i'm leo levinson and i'm the deputy director for finance and administration for the successor agency. our administrative budget is
approximately $10 million. our overall budget is around 300 million, that's mostly debt service and bond proceeds. but in terms of administration, it's about $10 million. our salary budget is about 4 million. >> so, i don't know -- so, what was your initial reaction when you saw the material weakness from the suggestions from the audit? >> well, actually, at the time this audit came about, i was with the controller's office where i was a division director. and, so, i guess to some degree i have a response to the material weakness. in january, i was invited and asked to take an assignment with the successor agency specifically to address the situation. and as what had already been in place was the transition -- the former redevelopment agency used to use its own financial system that was separate from the city's system, a system called j.d. edwards.
and the capacity to really use that system had declined, especially with the loss of staffing. and as part of the dissolution, there was a decision made to fold the accounting into the city's famous accounting system, which both had better internal controls and that was a very important thing, and also medthctionv ~ meant there would be many more people to make sure [speaker not understood]. so, that process has been substantially -- made progress through the course of the year and will essentially be completing it through the summer as we prepare our financial statements [speaker not understood]. so, i think that's really been a major part of our response. so, we had both -- since i came into the agency, i've done cross training of staff so we have more knowledge of famous and we have basically four staff now in addition to me that are working in different ways of the famous system. and we have also maintained
quite a large amount of support from the controller's office, very grateful for that. and continue to have a large work order to support this year so that they can supplement that and help us make sure that our financial statements are fully and accurately prepared over the summer. >> i just want to make sure i hear you correctly. you're taking on this assignment and it's in response to the understanding of where our weaknesses are as it relates to the successor agency? >> there's many things i'm doing there, but that's probably my most important function when i came into this and replaced the former deputy director who had left for other things in january. >> thank you. supervisor campos. >> so, just a quick question. so, are you -- is this a permanent assignment for you or -- >> this is my assignment now. i can't say that i'm -- actually continue to be a city employee. so, i'm formally an employee of the -- under the city administrator's office at this point, sort of on assignment
from my former job in the controller's office, and there's no specific length that i'll be there, but i'm committed to the success of this effort. >> i guess one question i have is one of the deficiencies in the housing authority on it was that they did not have a chief financial officer for a number of years. and, so, even though your administrative budget is 10 million, but you still have 300 million debt or other that you're managing, i would like to know from the auditor if they feel that this arrangement makes sense. i mean, i think you're very capable and we're glad to have you there. i just don't know if structurally that's the best way to do it. i'm not an expert on that. so, i'm wondering from the auditor what their thinking is in terms of staffing level and the way that it's structured. >> it really depends on the
continued activities of the successor agency. now, because the dissolution happened for 11-12 and because at the time the run down period was so quick, if you will, there were a lot of uncertainties that were involved in the process. and this year being the first full year where the successor agency is preparing its own financial statements, we will come back and as part of our 12-13 audit to evaluate whether the new staffing situation is adequate. in terms of the staffing resources that are needed going forward, it really does depend on the activities because conceptually, the successor agency should be winding down so it is not going into any new contracts or building [inaudible] going into new redevelopment projects. so, when the process is just paying off continuing debt and whatnot, the staffing resource he, staffing needs may not be as high as it currently is.
so, it's something that has to be continually validated. >> great. thank you. thank you very much. >> and i certainly appreciate the response, the swift response, if you will, you know, to this issue and i think it's just something that we have to continue monitoring. so, thank you. >> so, can we move forward with my presentation that was the only comment in terms of financial reporting. we do have a second comment relating to the new pension accounting standards. this is just an informational comment. it is not a deficiency in any sense. but because we do expect that it will have significant impact to the citifinancial statement, we want to bring it forward to your attention now. the new pension accounting standards [speaker not understood] will end by the city in 2015.
what has been the biggest difference in the newest pension accounting standard is that currently the city's financial statement that's not recognized the liability for the unfunded pension and opab promised benefits. with the new standards there will be a new -- the viability will be [speaker not understood] so that will have a negative impact on the city's [speaker not understood]. so, that will be the biggest change. we are currently working with the controller's office and as well as the [speaker not understood] system to evaluate the impact to prepare for the changes that need to happen in the next couple years for the implementation 2014-2015. so, our recommendation, i don't know if you want someone from the controller's office to speak on this item as well. >> thank you. please. >> yes. so, we are working with both the auditors and retirement. retirement already started, again, it is going to be implementing the next coming two years.
so, not this audit, but the audit of the next year, june 30, 2014 and the 2015. and we will be bringing retirement at the conclusion for the planning of the next audit so you can hear from them directly. >> thank you very much. colleagues, are there any other questions? okay, seeing none. >> thank you. >> next i would like to go over the report that we have, which is the single audit report. the single audit is a [speaker not understood] and compliance audit. for 2012, we have selected 18 major programs which cover 13 different city departments. we have three findings as a result of our single audit. the first one related to different health programs at the department of public health
and it is on the subject to pay [speaker not understood] requirement. what that requirement entails is any time the city passes funding onto an external entity whether it be a nonprofit organization, any cdos, or any other local government, the city as the primary grantee would have the responsibility of monitoring those other entities to make sure they are in compliance with the federal requirements. the finding related to a [speaker not understood] member, the data universal numbering system which is a number that is applied to an organization and it's used by the federal agencies to help track where the funding is going. so, there is a requirement to obtain the required number from the [speaker not understood] prior to awarding any subcontracts. so, as a result of our audit for these two federal programs, we found that the dph did not obtain such numbers from the recipients for 2012.
would you like the department to speak on this item? >> thank you. >> [speaker not understood] from department of public health. we have notified all our contractors that they're required to submit the [speaker not understood] number that will be part of their requirement along with the turning in their audited financial statements. and, so, we are -- we do have that corrective action in place. >> if i may, i have just a quick question. in which case did you guys not know that you had to require this of them? i just wanted to -- >> yeah, that's correct. >> okay. >> sometimes we did have the duns numbers, but we weren't aware it was required for all single audit contractors. >> thank you for responding to that. thank you.
>> so, the next finding, 2012 3 related to indirect costs at the department of environment. this is a grant from the u.s. department of energy and the grant allows for claiming reimbursement for indirect costs. during the audit we found that the indirect cost rate used for reimbursement claims was from [speaker not understood] indirect cost rate plan. when the state had approved the indirect cost rate plan, the rate was -- the approved indirect cost rate was actually lower than what was proposed by the department. but because the proposed rate was used for reimbursements, we did identify a question caused in this item. so, we report this particular finding. and i think the department is here to speak on this item as well. >> sure, let's bring them up. >> yes. >> department of environment. >> hello, commissioners. joe [speaker not understood], department of environment.
this issue came up because we're using the proposed rate of the icrp when we were creating the budget for this agreement. and subsequent to that, the actual approved rate was different than the one that we had put into the agreement. so, this audit actually brought it to our attention and since then we have rectified that with the funding agency and made our indirect rate conform to the approved icrp rate. thank you. >> thank you. >> so, that was the last of the findings from our single audit report. do you have any questions from the audit report from 2012 so far? >> no, i think we've peppered your presentation with our questions. supervisor campos has one more. >> what about the homeland security grant program? >> i'm sorry, i may have
skipped that one. oh, yes, i'm sorry. so, there is the very last finding is internal cultural reporting. this is the process of submitting reports to the grantor. this is not a noncompliance finding, meaning we did not find any er rs in the reports themselves. it was part of the process. [speaker not understood] would not be reviewed before it was submitted and that could lead to a chance of errors. so, we wanted to bring out to the department as well as your attention. ~ >> and is there someone here from the department of emergency management? >> good morning, commissioners. my name is patrick [speaker not understood], i'm with the department of emergency management. to address the single audit finding, we've actually involved another manager within our department to review any
reimbursement requests or any claims that are submitted to the grantors prior to submission. and we feel that this addresses any concerns for the audit finding. >> thank you. >> okay. so, the very last report that i have to present to you today is our audit plans for the 2012-2013. a lot of items that are included in this document that we have submitted to you have already been covered by kpmg in her prior presentation. so, i'll just give you an overview and highlight some of the key items i wanted to point out to you. on page -- starting with page 1 of the document, the executive summary, what this document includes is an overview of our audit process and our audit scope. the scope of the 2012-2013
audit will be the same as what i had mentioned as our audit scope for 2011-12. so we do audit all of the city funds except for the ones audited by the other auditors. if you will turn to page 3 of the other fund, it is a chart, if you will, on all the engagement teams we have assigned to the city's audit. the city's audit are broke not out into six different groups and they include the port of san francisco, the two hospitals, the successor agency to the redevelopment agency, the general city, which includes the single audit. the retirement system as well as the finance corporation. so, we do have individual teams that we assigned to this audit and along with our audit of the general city we also work with two local business enterprises. [speaker not understood] and lou ann wong on our audit. next, i wanted to highlight the
audit timeline. so, if you will turn to page 5, this is our timeline for each update individual component that are included in our audit. we are going through our [speaker not understood] phase now. we meet with representatives from governing boards and the key management to perform a risk assessment process. we come back during the september, october time frame to perform it the year-end audit where we substantiate the end balances, and we -- the goal is to issue all of the reports by thanksgiving of this year, except for the single audit which usually takes longer, into the january, february time frame. so, by then, by the end of this year we should have results in terms of the city's financial statements, and by march and april of next year we'll come back and present on the single audit. page 11, the engagement communications which goes over the responsibilities of the
auditor as well as of management because that was basically covered in ms. nguyen's presentation. i'll skip that part. let me know if you do have any questions. lastly, if you would point to page 17 through page 19 of the document, these are all the accounting standards that will be required to be implemented by the city and [speaker not understood]. i mentioned earlier in my presentation will be the pension standards that will be required to implement in 2014 and '15. and this document highlights some of the key changes that are expected to be coming. and with that, i'd like to close my presentation and turn it over to carmel a frank. >> thank you. >> thank you. ~ thank you, supervisors. did you have any other questions? >> thank you very much. colleagues, do we have any other questions on this item? no -- oh, supervisor -- >> i just want to make the point this can be very dry
stuff, but it's actually one of the most important functions that this committee performs. you're making sure that there is an independent third-party review of the external auditors of the finances of the city. and i'm very appreciative that all of the city departments, where there was a finding, were present to address, you know, what they were doing to deal with some of the findings and recommendations. and, of course, thank you to the controller's office that does a great job of overseeing all of this. and, so, of course, thank you to our external auditors as well. >> thank you very much. thank you. let's go and move for public comment on this item. i'd like to open up public comment at this time. if anyone would like to comment, please come up, sir. good afternoon.
my name is alvin [speaker not understood]. i have a couple questions for the two auditors. first one is regarding the redevelopment agency being closed, is it your judgment that the turmoil caused by the closure of the agency and the transition to a new body created a lot of problems in the sense that there wasn't a proper transition period? >> so, this is public comment, sir. you have two minutes to state your question. this is not an opportunity for a forum for them to rebuttal or answer your questions. so, what can happen is after we move this item -- i'll make my own point. from what i see from the rda got shut down, from their testimony, turmoil was created in terms of transition. th